Tax incentives are crucial tools in promoting economic growth, and Indonesia’s tax holiday policy is no exception. If you are a foreign investor or expatriate seeking insights into Indonesia’s tax system, this guide will walk you through the essentials, including the latest updates, benefits, and specific regulations for expatriates.
What Is a Tax Holiday in Indonesia?
A tax holiday in Indonesia refers to a fiscal incentive granted to companies in specific industries, exempting or reducing their corporate income tax for a designated period. This policy aims to attract both foreign and domestic investments to pioneer industries, ultimately stimulating economic growth and creating jobs.
The legal framework for tax holidays is outlined in Peraturan Menteri Keuangan (PMK) No. 130/PMK.010/2020, with recent amendments made under PMK No. 69/PMK.010/2024 to extend the facility until December 31, 2025.
Also read: Understanding Indonesia’s Tax Bracket System (Latest Update)
Why Does Indonesia Offer a Tax Holiday?
The tax holiday aligns with global efforts to maintain competitive investment climates amidst the introduction of the Global Minimum Tax (GMT) of 15%. Over 100 countries have implemented GMT, and Indonesia’s policy ensures that foreign investors can leverage incentives without being taxed heavily in their home countries.
According to Rosan Roeslani, Indonesia’s Minister of Investment, tax holidays have contributed to over 25% of total foreign investments. This policy also supports technology transfers, boosts strategic industries, and enhances Indonesia’s appeal in the global investment landscape.
Also read: Indonesia Tax Rate for Foreigners: What You Need to Know
Key Features of Indonesia’s Tax Holiday
Eligibility Criteria
Not all companies qualify for Indonesia’s tax holiday. Businesses must:
- Operate in designated pioneer industries such as upstream metal industries, automotive manufacturing, or pharmaceuticals.
- Make a minimum capital investment of IDR 100 billion (~USD 6.5 million).
- Ensure compliance with debt-to-equity ratio rules as outlined in PMK No. 169/PMK.10/2015.
- Begin implementing their investment plan within one year of receiving approval.
Incentives Offered
The tax holiday offers a reduction of corporate income tax as follows:
- 100% reduction for investments of IDR 500 billion and above.
- Duration:
- 5 years for investments below IDR 1 trillion.
- Up to 20 years for investments exceeding IDR 30 trillion.
- Duration:
- 50% reduction for investments between IDR 100 billion and IDR 500 billion, applicable for a 5-year period.
Taxpayers benefiting from the holiday must submit periodic reports on investment realization and fund utilization to the Directorate General of Taxes and the Verification Committee.
Also read: Progressive Tax in Indonesia: Complete Guide for Expats
Benefits of Tax Holiday for Foreign Investors
Indonesia’s tax holiday offers significant advantages:
- Reduced operational costs: Substantial tax cuts make large-scale investments more feasible.
- Enhanced profitability: Lower tax obligations enable reinvestment and expansion.
- Strategic market entry: Pioneer industry focus opens opportunities in high-demand sectors.
Also read: Withholding Tax in Indonesia: Complete Guide for Foreigners
Steps to Apply for Indonesia’s Tax Holiday Program
Foreign investors can apply for a tax holiday through the Online Single Submission (OSS) system, managed by the Indonesia Investment Coordinating Board (BKPM). The process involves:
- Submitting an application with a detailed investment plan.
- Complying with all required documentation, including audited financial statements and a feasibility study.
- Awaiting approval, typically granted within 30 business days.
Indonesia’s tax holiday is a compelling incentive for foreign investors aiming to tap into Southeast Asia’s largest economy. With extended facilities until 2025, the policy underscores Indonesia’s commitment to fostering an investment-friendly climate amidst global economic challenges.
Also read: LKPM Reporting for PMA / Foreign Companies in Indonesia
Rely on Investinasia’s tax consultants to take care of your taxes
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Partnering with a reputable consultant like InvestinAsia’s Indonesia tax consultant and compliance services can simplify your tax management and ensure full compliance with Indonesian tax laws.
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